A Review of the State of VT’s Tax System

Tax obligations in Vermont fund a wide range of public services, including the state’s education system, infrastructure maintenance, and various social programs. The state’s tax framework is designed to ensure these functions are adequately supported. Understanding this system helps residents and business owners meet their fiscal responsibilities.

Vermont Personal Income Tax

Your requirement to file a Vermont income tax return depends on your residency status. Full-year residents are taxed on all income, regardless of where it was earned. Nonresidents must file and pay tax on income from Vermont sources, such as a job or rental property. Part-year residents file a return that reflects income earned during their period of residency.

Vermont’s personal income tax system is progressive, with rates increasing as income rises. For the 2025 tax year, the rates for single filers are structured across five brackets.

• Taxable income up to $3,825 is not taxed.
• Income from $3,826 to $53,225 is taxed at 3.35%.
• Income from $53,226 to $123,525 is taxed at 6.60%.
• Income from $123,526 to $253,525 is taxed at 7.60%.
• Taxable income over $253,525 is taxed at 8.75%.

The income thresholds are doubled for those who are married and filing a joint return.

The calculation of Vermont taxable income starts with federal adjusted gross income (AGI). Vermont requires certain adjustments, such as adding interest from non-Vermont municipal bonds. Subtractions are also available for a portion of taxable Social Security benefits or contributions to the Vermont Higher Education Investment Plan.

Vermont offers several tax credits to eligible individuals and families. The Vermont Earned Income Tax Credit (EITC) is a refundable credit for low- to moderate-income working taxpayers. The Child and Dependent Care Credit provides relief for expenses paid for the care of a dependent to allow the taxpayer to work. A credit for taxes paid to another state is also available to prevent double taxation on the same income.

Sales and Use Tax

Vermont imposes a 6% statewide sales tax on the purchase of most goods and some services. This tax applies to items like furniture, electronics, and prepared foods. Some municipalities also levy an additional local option tax, which can increase the total rate to 7% in those locations.

Certain items are exempt from the state’s sales tax. These include unprepared food, clothing, footwear, prescription drugs, and medical equipment.

A complementary use tax applies to taxable items purchased from sellers who do not collect Vermont sales tax, such as from some online or out-of-state retailers. The buyer is responsible for reporting and paying the 6% use tax directly to the Vermont Department of Taxes. For example, a resident who buys a $500 desk from a non-collecting online retailer must remit $30 in use tax.

Statewide Property Tax System

Vermont’s property tax system funds both education and municipal services. The education tax is set by the state legislature to fund public schools. Municipal taxes are determined by individual towns and cities to pay for local services like road maintenance, police, and fire departments. A property owner’s total tax bill is a combination of both state and local levies.

Vermont residents who own and occupy a property as their primary residence on April 1st must file a Homestead Declaration annually. This declaration classifies the property as a “homestead,” which is taxed at a lower education tax rate. Filing the declaration is also necessary to apply for the Property Tax Credit.

The Property Tax Credit makes property taxes more affordable for eligible homeowners and renters based on their household income. Homeowners claim this credit by filing Form HS-122, the Homestead Declaration and Property Tax Credit Claim. Both homeowners and renters may need to complete Form HI-144 to report household income for calculating the credit. Renters can receive a similar benefit by filing the Renter Credit Claim.

Key Taxes for Businesses

C corporations and LLCs taxed as such must pay a corporate income tax on their net income derived from Vermont. The tax rates are progressive, ranging from 6.0% to 8.5%. Corporations must also pay a minimum annual tax based on their Vermont gross receipts.

S corporations, partnerships, and most LLCs are pass-through entities, where profits and losses are reported on the owners’ personal tax returns. The business itself must file a Business Entity Tax return for the privilege of doing business in Vermont. This includes a minimum annual tax that the entity must pay.

Certain industries face specific taxes. Businesses that sell prepared meals, serve alcoholic beverages, or provide lodging must collect and remit the Meals and Rooms Tax. This tax applies to restaurants, bars, hotels, and short-term rentals and is a percentage of the price of the meal or room.

Employers must withhold state income tax from employee wages based on their earnings and allowances claimed on Form W-4VT. Employers remit these withheld funds to the Vermont Department of Taxes on a regular basis, either quarterly or monthly, depending on the amount.

Filing and Paying State Taxes

The recommended method for filing state taxes is through Vermont’s online portal, myVTax. This system allows taxpayers to file returns, make payments, and manage their accounts for most state taxes. Taxpayers also have the option to file paper returns by mail.

Payments can be made for free through the myVTax portal using a bank account. The state also accepts credit card payments, though a third-party processing fee applies. Alternatively, a check or money order can be sent by mail with the corresponding tax form or voucher.

For most individuals, the deadline for filing the Vermont personal income tax return is April 15, aligning with the federal deadline. An automatic six-month extension to file is available, moving the deadline to October 15, but this does not extend the time to pay tax owed. Businesses have different filing schedules, often monthly or quarterly, for sales tax and employer withholding.